Here’s what Wall Street isn’t telling you about this stock market

Welcome to the worst day of the year for investors, though you wouldn’t know it by looking at stock futures this morning. Thank the portfolio window-dressers or bouncy dead cats, but the market looks set to fly.

Anyway, that gloomy prognosis for the day fits nicely with the disastrous end to the quarter we’re headed for, set to finish with 8% to 9% losses for the big U.S. indexes. The quarter has delivered the biggest point declines for the Dow industrials
DJIA, +0.72%
and the Nasdaq Composite
COMP, +0.50%
since the end of 2008, and the biggest for the S&P 500 since 2011.

Wall Street, though, is hoping to brush the quarter under the rug. A Reuters poll of 40 strategists found that most think the worst is over for stocks. (Less bullish, perhaps, is Goldman Sachs, which cut its S&P 500 target to 2,000 yesterday, though its strategist David Kostin cushioned that with a “flat-is-the-new-up” mantra.) Those strategists polled think the S&P will end up at 2,094 by the end of 2015 — a gain of 2% for the year, but 7% below where they thought it would be when asked a few months ago.

If these market magicians know anything, it’s that stocks needs a catalyst to go up. They can no longer count on the Fed, as one CIO quoted by Reuters rightly pointed out. (Note that Goldman also called for more QE.) This column discussed yesterday how that catalyst will be earnings, and companies themselves will need to put up or shut up to keep the bull from dying.

A 2% gain would keep the bull market going, but not by much.

Figuring out a year-end target for the S&P 500 is clearly a guessing game. And some really aren’t buying any sort of stock-market optimism at all. Take our call of the day, which warns that Wall Street is pulling the wool over the peasant’s eyes right now.

But those on the lookout for disaster may want to stand down when it comes to what Uncle Carl and others see as a potential horseman of the market apocalypse. See our chart of the day.

The economy

Private-sector payrolls rose 200,000 jobs in September. That’s just a bit more than was expected. Chicago’s purchasing managers index for September is coming at 9:45 a.m.

Fed Chairwoman Janet Yellen will give ‘welcoming remarks’ at St. Louis Fed conference on community banking at 3 p.m.

The call

Writing for Mauldin Economics, Tony Sagami says the average investor is about to get fleeced. A former Merrill Lynch stockbroker with 30 years of market experience, he chides today’s traders for becoming “cheerleaders who think the Federal Reserve exists to help them make money, which is why Bullard’s criticism is so accurate.”

He portends doom: “Those trend-following knuckleheads on Wall Street don’t realize it (yet), but the stock market will fall without the Fed’s help, because corporate America is starting to really struggle,” predicts Sagami.

Sagami’s evidence? Just 37% of companies have increased their revenue forecasts over the last six months, the smallest number since the 2001 dot-com bust. And just 49% of stocks have seen their earnings-per-share estimates revised up, the least amount since 2012.

What this all means is that Wall Street and its “cheering-pit traders” understand the stock market is going to drop like a stone unless more central-bank stimulus is coming, he says. “Wall Street continues to tell you and me to keep buying stocks, while behind the scenes they are becoming more bearish by the week,” he says.

Are we in a bear market? These tell-tale signs are tipping it, he says: Rallies that can’t hold, low-volume rallies, and triple-digit drops. Oh, and “when the media start to regularly comment about the bear market ... it’s too darn late,” he says.

Sagami has been telling readers to protect their portfolios since the Dow hit its high for the year so far of 18,321 in May. “We’ve only seen the tip of the bear-market iceberg,” he warns. Read the full blog here.

Earnings

The buzz

Jeremy C. Owens/MarketWatch

THE show last night.

Tesla
TSLA, -0.06%
got everyone excited last night about its new Model X SUV. CEO Elon Musk’s latest electric vehicle has “falcon wing” rear doors with an array of sensors that allow them to open differently depending on conditions, as Musk showed to applause Tuesday night. Tesla is up 1.5% in premarket.

But are we facing the abyss? Not so fast, says Pragmatic Capitalism’s Cullen Roche. In this chart he shows how junk bonds are a smaller piece of the entire bond pie:

Orcam Financial Group

Putting the junk in bonds

Roche points out that between 2000 and 2007, $18 trillion in new mortgage debt was issued, while between 2008 and 2014, just $1.6 trillion in new junk bonds were issued. “So, this debt bubble in junk bonds is substantially smaller than the mortgage debt crisis which led up to the Great Financial Crisis,” says Roche.

While Roche is still not a fan of junk bonds — he says lots of defaults are coming when the next cycle cracks — he still notes, “that doesn’t mean we’re staring at a 2007-type debt crisis in the U.S.” Read more here.

The quote

“And look, all I can say is Forbes is a bankrupt magazine, doesn’t know what they’re talking about. That is all I’m gonna say.” — Donald Trump is cross with Forbes magazine for understating his wealth.

The stat

Nearly $11 trillion. That’s how much was wiped out for global equity values in the recent quarter, says Bloomberg.

Random reads

Syrian refugee children will take over @UNICEF on Wednesday and tell their stories

Drinking one or two sugar-sweetened beverages every day could kill you

Inside the ‘DO NOT OPEN’ fridge

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